Glossary -> Capital Dividend
Capital Dividend
Income Tax Act s. 83(2), Reg. 2101
Canadian controlled private corporations
(CCPCs) keep
track of certain non-taxable income amounts, and are able to pay these
amounts to shareholders as a capital dividend. The capital
dividend is not taxable to the shareholders, thus is not reported on a
T5 and is not reported on the tax return of the recipient. The corporation
must file a capital dividend election when the dividend is paid or becomes
payable.
The non-taxable
income amounts are tracked in the company's capital dividend
account (CDA),
and include the non-taxable portion of capital
gains, less the non-allowable portion of capital losses, plus the
non-taxable portion of gains on eligible capital property (such as goodwill),
plus non-taxable life insurance proceeds. The CDA balance is
reduced by capital dividends paid by the corporation.
For certain gifts, such as a gift/donation of certain listed
securities to a qualified donee, the taxable amount of the capital gain is
deemed to be zero. Thus, the full amount of the capital gain is
non-taxable, so is added to the CDA balance.
TaxTips.ca Resources
Donating
Shares or Other Capital Property - can eliminate capital gains
Canada Revenue Agency (CRA) Resources
Income
Tax Folio S3-F2-C1, Capital Dividends